Decision Tool: Sell, Buy or Hold?

With the increase in home prices and the improvement of the overall economy, there’s a lot of activity in many markets. With everyone claiming to be a real estate expert, your clients will likely need your help as they try to figure out if now is the right time for them to make a move.

Even if the owners of the units you manage are accidental landlords, when they hired you to help them rent out their homes they became real estate investors. So, how can you help your clients make the transition from owner to investor and make smart decisions about when it’s best for them to sell, hold or buy additional rentals?

You can start by sharing the basic principles of real estate investing from your personal experience and then help them understand the financial factors at the basis of all real estate decisions, whether your clients own one rental or 100. To make your job a bit easier, All Property Management built a free tool called the Investment Property Analyzer to illustrate the various sell, hold and buy scenarios that all of your clients will face at some point in the future.

Residential real estate investing is similar to purchasing a corporate “coupon” bond. You put some money down, generate cash payments over time and, it is hoped, eventually sell at a profit. But, unlike a bond, these patterns of payouts and inflows vary significantly.

The best way to help your clients to understand the numbers is by projecting the likely cash flows of current and potential investments over time. To do this properly, you'd need to create a robust spreadsheet, complete with amortization formulas, “what if” logic and "goal seek" macros. But just in case you aren’t a finance and accounting whiz, with an expertise in Microsoft Excel, and several hours on your hands, we’ve created the Investment Property Analyzer.

The tool we’ve builtassumes a five-year investment horizon, the typical time frame for evaluating most financial decisions. After entering basic assumptions, such as initial down payment or equity, expected annual growth, monthly rent, vacancy rate and other factors, the Property Analyzer provides a summary of the data an owner/investor needs to make sound decisions: Return on Cash, Internal Rate of Return and Projected Cash Flow.